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Security forces on Wednesday evening defused a time bomb hidden in a handbag in an overcrowded market in southern Tehran, reported the official Iranian news agency, IRNA, citing a press report on Thursday.

The daily Tose'eh reported that the bomb was found in Qaem Shopping Center, in a market near the tomb of a religious figure that attracts visits from pilgrims.

"At 2:30pm (10:00GMT), a shopkeeper was tipped off. Police were immediately called in and defused the bomb half an hour later," it said, citing informed sources.

But an unnamed source told IRNA that the bomb scare was "fabricated."

"The bomb disposal group who opened the handbag saw a small watch wrapped in wires that was not actually a bomb," he said.

Iran is fighting a long-running battle with insurgents opposed to the Islamist regime that took power after the 1979 revolution against a US-backed dictator – Albawaba.com